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Opportunity Zones Considered Harmful

Yesterday, we pointed to a Tax Foundation item on a paper by Treasury estimating the impact of Opportunity Zones.

So-called “Opportunity Zones” have been a standby of conservative policy recommendations for troubled urban areas, going all the way back to the Reagan era. The TCJA created the OZ program to spur investment in low-income communities. 8,764 census tracts were designated as OZs in 2018. The way it works is that investors can defer and potentially reduce capital gains taxes by investing in Qualified Opportunity Funds (QOFs) that invest in OZs.

The paper uses IRS Forms 8996 (filed by QOFs) and 8997 (filed by QOF investors) and American Community Survey data on socioeconomic characteristics of census tracts to estimate the impact of OZ investments.

And they’re not good.

It looks like the program has done a lot to help rich people dodge taxes but has not helped local residents.

Several observations: OZs receiving investment tended to have higher incomes, home values, and education levels compared to those without investment. This indicates that investors are targeting areas already on the upswing, not those most in need of economic development. About 60% of QOF investments were in real estate, when the point of such a program is to develop local business, not engage in property speculation.

Meanwhile, the paper shows no evidence that these investments have translated into tangible benefits for low-income residents such as job creation, improved housing affordability, or enhanced community services.

A longstanding conservative idea ready for the bin? The problem with troubled communities is not the physical location. The problem of Baltimore (or West Virginia coal country) is not that they are on sacred Indian burial ground. The problem is that everybody who could afford and be functional enough to leave those areas did, leaving behind misery. The best thing for these places is not tax cuts, but the best thing for everywhere else in the country: law and order especially, functional infrastructure and public services, a good education system, and an end to corruption from local politicians.

Policy Links

#AI – Jacob Helberg, who is a research fellow at the Palantir Foundation and a commissioner for the U.S.-China Economic & Security Review Commission, and one of the smartest people when it comes to the intersection of tech, national security, and policy, has written an excellent article on “11 Elements of American AI Supremacy.” They are all interesting. The ones that struck us most regarded the importance of cheap, abundant energy, and of reshoring key semiconductor technologies.

#Debt – Yesterday’s Briefing was a bit of a cri de coeur about the national debt, which has hit the symbolic threshold of $35 trillion. Policy debate on this issue is highly frustrating, because the facts are well-known to all and undisputed, and all the options are comprehensible by a fairly precocious middle schooler. The problem is entirely political. Anyway, Michael R. Strain, one of the smartest economic minds at AEI, has a good thread on the basic arithmetic of the thing. Tl;dr: most of the pain will have to fall on the middle class. No surprise there.

#Debt – Speaking of, Brookings (presumably with fingers and toes crossed) informs us of how to tell if the US Treasury is having trouble borrowing in the bond market. If you need a refresher on the technical aspects of Treasury sales (and the bond market more generally), this is a very good piece. It points out that, technically, the government should never have problems borrowing in the bond market since banks are legally required to bid. However, the level at which they bid is another matter…

#AgTech – Interesting op-ed in the UK’s The Grocer: “It’s time for retailers to embrace gene-edited foods.” This could be one of the big opportunities of Brexit, as GMOs are famously banned in the EU in defiance of all scientific reason.

#Labor – Interesting finding from a new NBER paper: when blue-collar workers are selected as worker representatives, they vote more in line with the interests of blue-collar workers. Some on the New Right are interested in Germany’s highly successful sectoral bargaining system of union representation as a way of improving worker voice into the American system without going through the problems and pitfalls of the existing system. This study suggests that putting workers on worker councils isn’t just cosmetics: it changes the actual discussions and decisions made by management of business. Fascinating.

#Economics – Speaking of the economic interests of the working class… The cost of necessities—like food, housing, and clothing—has risen markedly faster than the cost of other goods and services. Brookings’ Jeffrey C. Fuhrer estimates that prices of necessities have risen 36% faster than other goods and services over the past 60 years. Wasn’t trade supposed to make this stuff cheaper?

#Energy – R Street’s excellent energy analyst Josiah Neeley with a primer on state permitting challenges to electric transmission.

#Immigration – CIS has identified the Jordanians in Quantico truck-ramming incident. Both are now released and free until the next hearing on 9/17. Extraordinary. More.

#Personnel – Personnel news: Kent Chandler, Former Chair of Kentucky’s Utility Regulator, Joins the R Street Institute’s Energy and Environmental Policy Program.

#Crypto – From Cointelegraph: “The crypto industry is investing h@jaeavily in the upcoming US elections, with PACs like FairShake raising $202 million.”

Chart of the Day

Via Michael Strain

Meme of the Day